1. IMPLEMENTATION OF MEMR REGULATION NO. 7/2012 RELATED ENHANCEMENT OF MINERAL ADDED VALUE THROUGH MINERAL PROCESSING AND REFINING ACTIVITY DIRECTORATE GENERAL OF MINERAL AND COAL MINISTRY OF ENERGY AND MINERAL RESOURCES Jakarta, June 2012

2. DAFTAR ISI I.PREFACE................................................................................................................3 II.MAIN POINT OF MEMR REGULATION NO 7/2012.............................................10 III.CURRENT CONDITION........................................................................................... 15 IV.FOLLOW UP.............................................................................................................21 V.REQUIREMENTS FOR RECOMMENDATION OF REGISTERED EXPORTER & EXPORT APPROVAL..............................................................................................24 VI. CLOSING.................................................................................................................30

3. PREFACE I.

4. 1.Mineral and coal is non-renewable resources that must be managed by state government, then the management should provide added value for national economic to achieve prosperity and welfare of the people. 2.To reach the goal in point 1 above, so the management of mineral and coal mining must give benefits, fairness and balance, as well as alignments to the interests of the nation. 3.Based on regulation that stated in Law Number 4 Year 2009 about Mineral and Coal Mining, there’s an obligation in increasing the value-added of mineral and coal through local processing and refining industry. I. PREFACE I.1. Problem Background

5. MEMR Regulation No 7/2012 Feb 6 th 2012 Law No 4/2009 Jan 12 th 2009 Inventory of processing and refining facilities plan Feb 2010 – Jan 2012 Government Regulation No 23/2010 Feb 1 st 2010 Due Date for IUP OP and Contract of Work holders in Operation Production Activity Stage Januari 12 th 2014 National IUP Reconciliation May 3 rd – 6 th 2011 Mineral Processing and Refining in Local Industry Government Regulation No 52/2011 (Tax Facilities) Dec 22 nd 2011 −Certainty of supply −Development of upstream industry −Research and development I. PREFACE (Continued) I.2. TIMELINE OF MINERAL PROCESSING AND REFINING MEMR Regulation No 11/2012 May 16 th 2012

6. Problem: There are big numbers of nickel ore export in 2011 (33 million tonnes), that increases for 800% compared to year of 2009 when Law No 4 Year 2009 released. This condition doesn’t encourage local Nickel/Stainless Steel industry. Current Condition (based on data from Ministry of Trade and Ministry of Energy and Mineral Resources) I.3.1 Nickel Ore Nickel Ore Export (Million Ton) I.3. Increasing Trend of Mineral Ore Export I. PREFACE (Continued) Economic Impact: Encourage local nickel processing industry with demand of nickel ore 18 million tonnes/year. Economic Impact: Encourage local nickel processing industry with demand of nickel ore 18 million tonnes/year. Policy strategy: Synchronization with the laws and regulations. Apply DMO regulation to fulfill local demand of nickel/stainless steel industry. Rare earth minerals : Scandium, Lantanum, Yttrium Added value from ore into metal is 19 X

7. Problem: There are big numbers of iron ore and iron sand export in 2011 (13 million tonnes), that increases for 800% compared to year of 2009 when Law No 4 Year 2009 released. This condition makes iron ore/iron sand reserves will run out in next 9 years. This condition doesn’t encourage local steel industry. I.3.2 Iron Ore Iron Ore Export (Million Ton) I. PREFACE (Continued) Current Condition (based on data from Ministry of Trade and Ministry of Energy and Mineral Resources) Economic Impact: Encourage local iron ore/iron sand processing industry (sponge/pig iron) that has capacity for 9,5 million tonnes/year, with estimation of investment is about USD 1 billion. Economic Impact: Encourage local iron ore/iron sand processing industry (sponge/pig iron) that has capacity for 9,5 million tonnes/year, with estimation of investment is about USD 1 billion. Policy strategy : Synchronization with the laws and regulations. Apply DMO regulation to fulfill local demand of steel industry. Rare Earth Minerals : Vanadium, Titanium Added value from ore to metal is 4 X

8. Problem : There are big numbers of copper ore export in 2011 (14 thousand tonnes), that increases for 800% compared to year of 2009 when Law No 4 Year 2009 released. Capacity of local processing and refining industry (copper cathode) only absorbs about 30% of total concentrate production. ±0,01% concentrate that has precious metals has been processed outside the country. I.3.3 Copper Ore Copper Ore Export (Million Ton) I. PREFACE (Continued) Current Condition (based on data from Ministry of Trade and Ministry of Energy and Mineral Resources) Economic Impact: Encourage local processing and refining industry that process copper concentrate into copper cathode with capacity 425 thousand tonnes/year with estimated investment about USD 1,4 billion. Increase competitiveness of copper downstream industry that produce wires, PCB, and another electronic components. Economic Impact: Encourage local processing and refining industry that process copper concentrate into copper cathode with capacity 425 thousand tonnes/year with estimated investment about USD 1,4 billion. Increase competitiveness of copper downstream industry that produce wires, PCB, and another electronic components. Policy Strategy : Synchronization with the laws and regulations. Apply DMO regulation to fulfill local demand of steel industry. Rare earth minerals : Platina, Paladium, Selenium, Telurium

9. Problem : There are big numbers of bauxite ore export in 2011 (40 million tonnes) that increases for 500% compared to year of 2009 when Law No 4 Year 2009 released. This condition makes bauxite reserves will run out in only 4 years and this will not encourage local alumina industry. I.3.4 Bauxite Ore Bauxite Ore Export (Million Ton) I. PREFACE (Continued) Current Condition (based on data from Ministry of Trade and Ministry of Energy and Mineral Resources) Economic impact: Encourage local processing and refining industry that process bauxite ore into Alumina with capacity 7 million tonnes/year, with estimated investment about USD 8,4 billion Demand of Alumina from PT. INALUM in about 500 thousand tonnes/year can be supplied locally. Economic impact: Encourage local processing and refining industry that process bauxite ore into Alumina with capacity 7 million tonnes/year, with estimated investment about USD 8,4 billion Demand of Alumina from PT. INALUM in about 500 thousand tonnes/year can be supplied locally. Policy strategy : Synchronization with the laws and regulations. Apply DMO regulation to fulfill local demand of Alumina industry. Rare earth minerals : Titanium, Tantalum, Scandium, Lantanum, Yttrium) Added value from ore to metal is 30 X

10. MAIN POINT OF MEMR REGULATION NO. 7/2012 II.

11. II.1. Mineral Added Value Procedures II. MAIN POINT OF MEMR REGULATION NO. 7/2012 Metallic Mineral Rock Mineral Non-Metallic Mineral Processing Refining

12. II.2. Implementation of Mineral Added Value II. MAIN POINT OF MEMR REGULATION NO. 7/2012 (Continued) IUP OP Own the Plant Cooperation Third-Party IUP/IUPK OP Processing and Refining IUP OPK Selling Ore/Concentrate Processing and Refining Activity Build Infrastructure

13. II.3. Implementation of Mineral Added Value IUP/IUPK Exploration due to feasibility study, is not profitable to do processing and/or refining activity or can’t create a joint operation project and/or cooperation, should consult to Director General. Based on the results of consultation, Director General can nominate another IUP/IUPK Production Operation and/or IUP OPK Processing and Refining to process and refine those commodities as long as meet its specifications and its capacity. II. MAIN POINT OF MEMR REGULATION NO. 7/2012 (Continued)

14. Director General can facilitate IUP Production Operation, IUPK Production Operation, and/or IUP OPK Processing and Refining to accomodate ore/concentrate from another IUP Production Operation, IPR, IUP OPK Transport and Sale that is not profitable to do their own processing and refining activities, as long as meet its specifications and its capacity. IV.4. Implementation of Mineral Added Value (continued) II. MAIN POINT OF MEMR REGULATION NO. 7/2012 (Continued)

15. CURRENT CONDITION III.

16. Source: Geology Agency, 2010 III. 1. Mineral Metal Resources dan Reserves III. CURRENT CONDITION

17. III.2.1. Status OF IUP (I,II,III, and IV announcement) - 31 May 2012 update TOTAL IUPIUP C&CIUP NON C&C 10.3614.4965.865 IUPMINERALCOAL TOTAL2.6881.808 TOTAL4.496 III.2.2. Discription of IUP C & C of 31 May 2012 III.2.3. Discription of IUP Non C & C of 31 May 2012 IUPMINERALCOAL TOTAL4.0151.850 TOTAL5.865 III.2. STATUS OF IUP III. CURRENT CONDITION (Continued)

18. III.2.4. Recapitulation of IUP Minerals Per Activity Phase (update 31 May, 2012) NOIUP PHASETOTAL IUPIUP C&CIUP NON C&C 1EXPLORATION2.8791.0901.789 2OPERATION PRODUCTION3.8241.5982.226 TOTAL6.7032.6884.015 NOIUP PHASETOTAL IUPIUP C&CIUP NON C&C 1 EXPLORATION 2.4101.0631.347 2OPERATION PRODUCTION1.248745503 TOTAL3.6581.8081.850 III.2.5. Recapitulation of IUP Coal Per Activity Phase (update 31 May, 2012) III. CURRENT CONDITION (Continued)

19. III.3. Recapitulation of Processing & Refining Plan Document (Update 31 May, 2012) 1.PROCESSING & REFINING EXISTING : 7 COMPANY 2.PROCESSING & REFINING PROPOSAL BEFORE MEMR REGULATION NO 7 YEAR 2012 : 24 COMPANY 3. PROCESSING & REFINING PROPOSAL AFTER MEMR REGULATION NO 7 YEAR 2012 : 126 COMPANY TOTAL : 157 COMPANY III. CURRENT CONDITION (Continued)

20. III.4. Recapitulation of Consultation Request (update 31 May 2012) NoRequestAmount 1Certificate C&C Request76 2Certificate C & C that have been published55 3Requesting of Recommendation of Registered Exporter156 4Recommendation of Registered Exporter that have been published46 5Recommendation of Approval Export Letter that have been published2 III. CURRENT CONDITION (Continued)

21. FOLLOW UP IV.

22. Minister of Trade Regulation No. 29/M-DAG/PER/5/2012 regarding Export Mining Product Regulation (7 May, 2012) MEMR No. 11 Year 2012 regarding Amendment of MEMR No. 07/2012 about Enhancement of Mineral Added Value Through Processing and Refining Activity (16 May, 2012) Minister of Financial Regulation No. 75/PMK.011/2012 regarding Determination of Export Goods for the applied duty and duty tariff. (dated 16 May, 2012) Director General Regulation No. 574.K/30/DJB/2012 regarding Procedures and Requirement of Export Recommendation for Mining Product (11 May, 2012) IV.1. Follow Up of MEMR No. 7/2012 IV. FOLLOW UP

23. In order to improve effectiveness of control implementation of sales mineral out of the country, need to change regulation about enhancement of mineral added value through processing and refining activity. Therefore at 16 May, 2012 Government has issued MEMR No. 11 Year 2012 regarding Amendment of MEMR No. 07/2012 about Enhancement of Mineral Added Value Through Processing and Refining Activity. Main Point of MEMR No. 11 Year 2012 are between Article 21 dan Article 22 inserted 1 (one) Article, namely Article 21A, as follows: (1)IUP Operation Production Holder and IRP referred to in Article 21 can sell ore (raw material or ore) minerals out of the country if has receiving recommendation from the Minister cq Director- General. (2)Recommendation reffered to in paraghraf (1) be given after IUP Operation Production Holder and IPR reffered to in paraghraf (1) fulfil criteria such as : a.status of IUP Operation Production and IPR are Clear and Clean; b.Payment all financial obligation to the state; c.submit a work plan and / or cooperation in processing and / or refining of minerals in the country; and d.signing the integrity pact. IV.2. MEMR No. 11/2012 IV. FOLLOW UP (Continued)

24. REQUIREMENTS FOR RECOMMENDATION OF REGISTERED EXPORTER & EXPORT APPROVAL V.V.

25. 1)copies of certificate C&C; 2)integrity pact; 3)memorandum of understanding with other IUP Operation Production or IUP Operation Production Special for processing and refining if doing cooperation; 4)work plan establishment processing and refining facility own and/or cooperation processing and refining facility in the country; 5)copies of sales contract of mining product with end user; 6)copies of Tax Payer Identification Number; and 7)copies of company registration mark. IUP OP metallic mineral, non metal, rocks, with requirement : IUP Operation Production Specially for transportation and sales of mineral, with requirement : 1)Copies of IUP Operation Produktion Specially for transportation and sales of mineral; 2)cooperation agreement with the IUP Operation Production holder has signed a integrity pact to build own processing and refining facilities and / or who have had a memorandum of understanding with other IUP Operation Production or IUP Operation Production Specially for processing and refining facilities to develop processing and refining facility in the country; 3)copies of sales contract of mining product with end user; 4)copies of Tax Payer Identification Number; and 5)copies of company registration mark. V.1. Requirement for Recommendation Registered Exporter Recognation V. REQUIREMENTS FOR RECOMMENDATION OF REGISTERED EXPORTER & EXPORT APPROVAL

26. 1)copies of IUP Operation Production Specially for processing and refining; 2)work plan to developed processing and refining facility own and/or cooperation to developed processing and refining facility in the country; 3)copies of sales contract of mining product with end user; 4)copies of Tax Payer Identification Number; and 5)copies of company registration mark. Special IUP OP of processing and refining, with requirement: V.1. Requirement for Recommendation Registered Exporter Recognation V. REQUIREMENTS FOR RECOMMENDATION OF REGISTERED EXPORTER & EXPORT APPROVAL (Continued)

27. 1)copies of Registered Exporter of Mining Product; 2)export plan included are types and ammount of mineral commodities to be exported, tariff number/HS, port loading, and export destination; 3)data of Resource, reserve dan production; 4)copies of sales contract of mining product with end user; 5)copies of provement of reclamation guarantee placement; 6)copies of provement of payment landrent/deadrent 1 (one) year last; and 7)Copies of provement of payment royalty of metallic mineral 1 (one) year last or proff of payment tax level II for non-metallic mineral and rock in 1 (one) year last. IUP OP metallic mineral, non metal and rocks, with requirement: V.2. Requirement for Recommendation of Export Approval V. REQUIREMENTS FOR RECOMMENDATION OF REGISTERED EXPORTER & EXPORT APPROVAL (Continued)

28. IUP OP Specially for transportation and sales of mineral, with requirement: 1)copies of Registered Exporter of Mining Product; 2)export plan included are types and ammount of mineral commodities to be exported, tariff number/HS, port loading, and export destination; 3)data of Resource, reserve dan production; 4)copies of sales contract of mining product with end user; 5)copies of work plan developing of processing and refining facility own and/or cooperation developing of processing refining ini the country from IUP OP and/or IPR; 6)copies of provement of payment landrent/deadrent 1 (one) year last from IUP OP or IPR and; 7)copies of provement of payment royalty of metallic mineral 1 (one) year last or proff of payment tax level II for non-metallic mineral and rock in 1 (one) year last from IUP OP or IPR. V.2. Requirement for Recommendation of Export Approval V. REQUIREMENTS FOR RECOMMENDATION OF REGISTERED EXPORTER & EXPORT APPROVAL (Continued)

29. 1)copies of Registered Exporter of Mining Product; 2)export plan included are types and ammount of mineral commodities to be exported, tariff number/HS, port loading, and export destination; 3)copies of sales contract of mining product with end user; 4)Cooperating aggreement with IUP OP holder and/or IPR which has receive clear and clea certificate 5)copies of provement of payment landrent/deadrent 1 (one) year last from IUP OP or IPR and; 6)copies of provement of payment royalty of metallic mineral 1 (one) year last or proff of payment tax level II for non-metallic mineral and rock in 1 (one) year last from IUP OP or IPR. IUP OP Specilly for processing and refining, with requirement : V.2. Requirement for Recommendation of Export Approval V. REQUIREMENTS FOR RECOMMENDATION OF REGISTERED EXPORTER & EXPORT APPROVAL (Continued)

30. CLOSING VI.VI.

31. 1.Some mineral commodities (ie nickel, bauxite, iron ore and sand iron and manganese) mostly sold out of the country in ore formed (raw material / ore). 2.To ensure the sustainability of mineral processing and refining in the country to the future, then absolute to control of mineral sales out of the country in ore formed. 3.MEMR. 7/2012 become a strong legal basis for the Government to encourage companies to increase value added through processing and refining of mineral in the country. 4.Need the support of all stakeholders to realize increased value added through the mineral processing and refining of mineral activity in the country as mandated by Law No. 4/2009. VI. CLOSING

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